Strategy for the Telecommunications, Media and Technology industries

A Virtual SIM: Implications for Hardware, Consumers & Carriers

Your mobile SIM card will soon disappear. If you read the tech news this week you probably would have seen a headline similar to this – espousing the death of the physical SIM card. The SIM card (as we know it) is such a fundamental part of the cellular business model that a change to that construct has far-reaching implications for hardware developers, consumers and carriers.

What is a virtual SIM or e-SIM?

The concept of replacing a ‘physical SIM’ for a ‘virtual’ or ‘e-SIM’ is not new, but in the last 6 months hardware developers (Apple and Samsung) and carriers have come to the table to plan its implementation. As early as March this year, as part of the Mobile World Congress (MWC) in Barcelona, it was announced that the GSMA (the association that represents carriers) is working to create a common and global specification for the remote over-the-air provisioning and management of connectivity to consumer devices. A long list of mobile operators (including AT&T, Etisalat, NTT DOCOMO, Orange and Telstra) provided comment on their commitment to the new SIM format.

Specifically, an e-SIM card is built into the phone and is not tied to any single carrier. This makes it far easier and far faster for subscribers to switch carriers – something that consumer electronics manufacturers are also keen to adopt for connected items around the house as part of the Internet of Things (IOT). The information on the SIM will be compliant with all operators, meaning a user can decide to change operator with a change in settings. There will also be no physical swapping over required by the user and new SIM will not be required, nor should there be any time delay in switching the e-SIM to its new purpose.

What are the major implications for Hardware, Consumers and Carriers?

Hardware developers

Blackberry, through Movirtu and Apple with its ‘Apple SIM‘ have already started to trial the virtual SIM concept allowing users to select between multiple carriers. The major implications for hardware developers are:

Global deployment: Hardware manufacturers will have the ability to deploy their mobile hardware anywhere in the world without concern for SIM or carrier specifications. This will help to streamline design but may also remove market barriers for new mobile hardware.

A standard for IOT devices: A common standard for e-SIM removes at least one more barrier for manufacturing IOT devices. It can enable multiple devices (or things) to access customised network connections rather than setting up with multiple physical SIM cards.

Consumers

Many of the benefits of an e-SIM lie with the consumer – More choice, greater options for connectivity and a seamless customer experience. There are many implications for consumers but the top few are:

Choice of providers: One of the main benefits is choice of providers. As e-SIMs are rolled out, consumers will have access to any connection at anytime through whichever network they choose. It may even be possible that software will eventually automatically choose the network based on speed or spot price.

Global roaming: Ever waited in a queue in the airport at another country to pick up a local SIM? A virtual SIM would eliminate this experience potentially boiling it down to a one-click new country activation. A truly mobile experience plus no more global roaming charges.

Multiple numbers: For some consumer’s the ability to have multiple numbers has meant switching SIM cards on phones or carrying multiple devices. A virtual SIM opens up the possibility to have multiple numbers on a single device which could create identity options for consumers.

Carriers

On face value, carriers will face the most change from a virtual SIM environment. It removes yet another layer of consumer dependency on operators helping to create conditions for even greater commoditisation of the network. That said, representatives from carriers like Francisco Montalvo of Telefónica Group are embracing the changes a virtual SIM will offer:

“Remote SIM is a natural evolution in our industry. Making the right choices now in terms of technology, usability and user experience will ensure our consumers a successful transition without compromising the quality of service that they expect from the mobile network operators”

This evolution is likely to lead to the following major implications for carriers:

New pricing mechanisms: With a lower barrier to switching carriers devices will become ‘carrier agnostic’. To counter this, Operators are likely to embrace new contracting methods like ‘pay to play’ or models not tied to data usage. Lengthy contracts are going to carry less weight as consumers have more incentive to bring their own device and ‘shop around’ for the best carrier deals.

Changes to operations: The process of provisioning a service can be quite cumbersome and take up to 2 days for many carriers. Virtual SIMs will put pressure on carriers to provide near real-time provisioning of services out of the virtual environment – a capability many carriers do not have today. At the MWC Shanghai this month Gemalto, a leading SIM provider, has been demonstrating “remote provisioning of consumer devices based on GSMA architecture”. It is an example that other non-carriers may start to own this part of the carrier operations.

New security and privacy concerns: A virtual SIM adds extra complexity for security and privacy protection for customers. For example, as customers ‘carrier switch’ to find good deals, carriers will need to be able to offer customers real-time protection and privacy. For many carriers this may be a difficult service even as customers are on 1-2 year long contracts.

New revenue streams and differentiation: New revenue streams such as those relating to Internet of Things, OTT services or device sales are likely to appear as a result of virtual SIMs. Virtual SIM will enable more devices to connect to carrier networks but OTT services will lock customers in. Without differentiation it may be a ‘race to the bottom’ in terms of price.

A Virtual SIM is an exciting step for the telecommunications industry. It offers up the potential for simple and seamless interactions between carriers and consumers as well as opening the barriers for growth in new device categories. Although many carriers are championing the change, they stand to lose the most from removing this customer dependency. They will need to respond with new charging models, transforming their operations and developing new ‘sticky’ revenue models.